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The Panama Papers ICIJ Investigation

Blacklisted Tax Havens

During the early 2000s, tax havens and the lawyers, accountants and bankers who serviced them fought a pitched battle with the Organisation for Economic Co-operation and Development (OECD). Revenue was vanishing into tax havens. The use of secret bank accounts and anonymous shell companies by Russian mobsters, drug cartels and kleptocratic politicians had become impossible to ignore. The secrecy world was lawless territory and international organizations like the OECD tried to impose some standards.

The stick the OECD wielded was the threat of a blacklist. If tax havens did not adopt reforms – information exchanges, better vetting of customers, more transparency, raising tax rates – the OECD threatened to restrict their access to the global financial system. This was a real threat. The OECD is truly an international organization. Its members include the United States and the other richest nations of the world.

However, the tax havens fought back. They had powerful ideological allies in Washington, including congressional Republicans and the Bush administration. Their efforts succeeded. More about this battle can be found in my book, Secrecy World. By March 2003, powerful offshore intermediaries like Panamanian law firm Mossack Fonseca declared victory.

“We are very pleased by the fact that the coordinated efforts of the offshore jurisdictions to repel harmful initiatives that once threatened the financial privacy of our customers have received proper recognition,” the firm told its clients in the company newsletter that year. “As a result we have before us a very positive outlook for the year 2003.”

The good times continue to this day. When the OECD first began its campaign it identified forty-seven tax havens worldwide. By June 2016, the OECD had a single country on its tax haven list, Trinidad & Tobago. Nobody on the planet – except the OECD – believed that Trinidad was a the sole tax haven, or even a significant one.

In April 2016, the Panama Papers were published worldwide to considerable attention. Gnashing of teeth and rending of garments ensued. Three months later, European Finance ministers launched a process to create a new blacklist. They worked through something called the Council’s Code of Conduct Group on Business taxation. The process was opaque and apparently marked by intense lobbying.

Yesterday, the EU process released the results to much fanfare. Seventeen jurisdictions were blacklisted: American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates.

Another 47 jurisdictions were added to a grey list including Switzerland, Turkey and Hong Kong.

Given the fact that they were severely knocked about by a major hurricane in September, a number of the Caribbean tax havens such as the Bahamas, British Virgin Islands and the Turks and Caicos were given more time.

How the blacklist is to be implemented and what it really means, beyond bad press for those named, is a bit fuzzy. There are no economic sanctions attached to the list. It’s up to individual EU member states to take action.

Nonetheless, tax havens on the list protested fiercely. Panamanian President Juan Carlos Varela blasted his country’s inclusion as “unfair.” Panama, he asserted, is “not in any way a tax haven.”

The reactions from those who have campaigned for tax fairness and tax haven transparency ranged from scathing to dismissive.

Sven Giegold, a German Green EU parliament member who has spearheaded efforts against the tax havens had this to say:

From the very beginning EU Member States were entirely excluded from the screening process although the Netherlands, Ireland, Malta, Luxembourg, the UK and Cyprus do not comply with the EU’s own criteria. In the shadow of the opaque Code of Conduct Group, Member States successfully lobbied to get their own dependencies and overseas territories off the hook. If countries with a tax rate of zero do not appear on the blacklist, it is not worth the paper it is written on. Even worse, as long as the Council cannot agree on common and automatic sanctions against listed tax havens, the blacklist will be toothless.

British professor and accountant Richard Murphy, who has focused on this issue for decades, was skeptical but encouraged by one provision. The Council appears to have wheedled a commitment from the tax havens of Bermuda, Cayman Islands, Guernsey, Isle of Man and Jersey to address concerns about the use of their countries to attract profit that is earned elsewhere. These are major players in offshore corporate tax avoidance. We shall see if these commitments amount to anything meaningful.

On his blog Murphy stated:

The fact that the EU has ignored its own abusive states undermines much of the credibility that this list might have. That makes this a disappointment for all those who have campaigned for tax haven reform, even if the writing is on the wall for at least five British tax havens.

The new blacklist underscores the power of the press, and its limitations. The Panama Papers helped force this issue onto the agenda of European politicians who would be happier ignoring it. However, the major powers continue to exhibit a lack of will when it comes to reforming a system that bleeds countries of much-needed revenue and feeds global criminality.

Iceland Censors Glitnir Leak

Iceland has long boasted a progressive reputation. Outside the country, it’s seen as a beacon of freedom, tolerance and civic engagement. There is plenty of truth to this view.

Julian Assange helped craft Iceland’s media laws in 2010, and housed his organization’s payment system in Reykjavik. When the FBI arrived to investigate Wikileaks, Iceland’s interior minister ordered police not to cooperate.

After the 2008 financial crisis, Icelanders took to the streets in what became known as the pots and pans revolution. The government launched an investigation into the collapse of the country’s banks. It appointed a special prosecutor. More than twenty people including bankers were jailed for their actions. Granted prison in Iceland is cushy but the country did far more to prosecute financial crisis wrongdoing than the United States.

When Icelandic journalist Jóhannes Kr. Kristjánsson and a team from Swedish Public Broadcasting exposed Prime Minister Sigmundur Gunnlaugsson’s secret offshore company in the Panama Papers, Icelanders rallied once again. The people drove Gunnlaugsson from office.

However, recent events have tarnished Iceland’s image.

Last month, the Guardian, the Icelandic newspaper Stundin and Kristjánsson’s Reykjavik Media published an exposé based on leaked documents. Their story showed Prime Minister Bjarni Benediktsson, while a member of parliament in 2008, cashed out his assets in Glitnir bank right before the government took it over and imposed losses on those left behind. Benediktsson comes from a well-connected wealthy family in Iceland. He claims that he had no inside knowledge about the bank closure.

After the first story was published, the Reykjavik District Commission, at the request of the bankruptcy estate of Glitnir, put a gag order on Stundin and Reykjavik media prohibiting them from more news coverage based on the leak. Future stories were likely curtailed. In protest, Stundin published a front page that was blacked out. Icelandic journalism organizations protested. The gag remained nonetheless.

A court date for a judge to review the order is scheduled for January 6.

Still, the damage had been done. Benediktsson was up for election at the end of October. While it may not have changed the outcome, Icelandic voters were deprived of a full airing of information that could have informed their trip to the polls. Press freedom suffered a blow in an unlikely place. Benediktsson’s party won the largest share of seats.

In another surprise from the election, Gunnlaugsson came back from the dead. His new Centre Party received nearly 11 percent of the vote.